Q&A:
Anshu Jain
The London-based Anshu Jain, Head of Deutsche Bank's Global Markets
division and member of the bank's Group Executive Committee, was
in Mumbai for a day recently. He spoke to BT about trends in global
debt markets, banks' appetite for coprorate risk, derivatives and
the implications for India.

Just
when you think things couldn't get any worse, they do. The dotcom
crash, the IT squeeze, and the global slowdown all seemed to be
the worst that could happen to your company when they did. But then
came the great telecom meltdown, the accounting scandals in the
US, the global stock market paranoia, and now the spectre of a US-Iraq
war. Like they say, it never rains, it pours.

On Dalal Street, it was a record (half) year
too-of loss in market capitalisation. Consider this: of the largest
500 companies, a good 115 actually saw their value fall in the first
half of this fiscal, compared to the same period last year. That's
Rs 42,810 crore in market cap gone before you could say 'sell'.
Yet, in many ways, the investor may have just gotten a lot smarter.
Reason? Among the top most valuable companies, the losses in market
cap were relative, meaning that while they all lost, they managed
to more or less keep their places. Thus, you have the top five-HLL,
Wipro, Reliance, Infosys, and ITC-losing more than Rs 13,000 crore
in cumulative market cap, but none the worse for it in terms of
sheer ranking.

THE BT TOP 10*

1

HINDUSTAN LEVER

42,458.64

2

WIPRO

33179.34

3

RELIANCE INDUSTRIES

28,350.92

4

INFOSYS TECHNOLOGIES

22,967.08

5

ITC

16,112.69

6

RELIANCE PETROLEUM

12,438.28

7

RANBAXY LABORATORIES

10,131.28

8

HDFC

7,561.93

9

SATYAM COMPUTER SERVICES

7,401.25

10

DR. REDDY'S LABORATORIES

7,255.69

*Ranked on average market cap for
H1 2002-03
Figures in Rs crore

Stocks that were high on the pecking list, but
seemed to be losing their grip, were mercilessly pushed off their
precious perch. HCL Technologies, Zee Telefilms, and Himachal Futuristic
Communications Ltd (HFCL) (7, 8, and 10, respectively, on the 2001
BT 500) don't figure among the top 10 this year. The three new usurpers:
Ranbaxy Laboratories, Housing Development Finance Corporation, and
Dr Reddy's Laboratories. (However, the biggest surprise should have
been ONGC. Had the oil giant not been a state-owned company, it
would have been the most valuable company on the BT 500.) This spotlights
the other part of our argument: that for companies that seem committed
to growth and profits, there's still plenty of good valuation around.

Searching For Trends

But we would recommend that you don't look
for trends. For, in the past months, there has been none. Sure,
anything to do with technology and telecom lost its sheen. But here
again, the investor has been selective on his bets. Take telecom,
for instance. While HFCL sank like a stone, the newly-listed Bharti
Tele-Ventures sauntered in at a cool #13, with an average first-half
market cap of Rs 6,219 crore. In the auto industry, too, two-wheeler
stocks rode high on the back of strong motorcycle sales. Hero Honda
saw its value more than double to Rs 6,255.69 crore in the first
half of 2002-03. Bajaj Auto's soared too from Rs 2,541.35 crore
to Rs 4,794.34 crore. The dark horse, of course, was TVS Motor,
whose market cap almost quintupled to Rs 1,015 crore. Similarly,
while the cement industry's cup of woes continued to brim over,
Gujarat Ambuja, Grasim, and acc made smart gains.

TOP 15 GAINERS AMONG THE TOP 100

COMPANY

AVG. Mkt. Cap in H1 2002-03

% Gain*

TVS Motor Co.

1,015.25

376.82

Hinduja TMT

1,076.57

375.45

Kotak Mahindra Finance

962.32

290.17

E-Serve International

694.85

285.10

Mastek

509.47

275.52

Mphasis BFL

894.94

227.64

Balaji Telefilms

541.77

203.58

Bharat Forge

585.17

165.17

Indian Petrochemicals Corpn.

3,084.44

150.40

Tata Engineering & Locomotive Co.

4,401.09

139.09

Vysya Bank

608.9

138.70

Mascot Systems

544.06

114.15

Hero Honda Motors

6,255.69

103.18

CMC

866.16

102.66

Rolta India

759.52

100.22

Average market capitalisation in Rs crore
* For H12002-03 over H12001-02

The overall trend, though, has undoubtedly been
bearish. That's best demonstrated by the FMCG sector, where almost
all the big companies lost. HLL, P&G, Colgate-Palmolive, GSK
Consumer, Dabur, Britannia... you name it. A quick back of the envelope
calculation shows that between them, these companies lost a staggering
Rs 5,950 crore in value in the first half of this fiscal, compared
to the corresponding period in the previous year.

If one were to step back a bit to, say, the
euphoric days of 2000 and see what's happening in the stockmarket-especially
to the information technology stocks-the massacre looks all the
more gory. Wipro, Infosys, and Satyam are at half their values,
and HCL Tech is at almost a third. Says Devesh Kumar, Head of Equities,
i-Sec: "When globally there is negative sentiment, India is
not doing enough to change the news flow emanating from within the
country."

Yearning For A Driver

The general uncertainty has meant that there
are no clear trends in the market. Hopes of a recovery are periodically
punctuated by fears of another downturn. Notes Sandeep Bhatia, Executive
Director, UBS Warburg Securities: "The market is searching
for a driver, which unfortunately is not holding up for a long enough
period of time." Indeed. Take the case of PSU disinvestment.
Just when the sell-offs seemed to have gathered steam, sundry forces
from within and outside the government managed to derail it. No
doubt, the Prime Minister has come its rescue, but there's no guarantee
disinvestment will actually happen. In such a situation, the market
seems to be jumping from sector to sector. Even globally, there
is not a single sector that is positively up.

"In
the last 12 months, there has been nothing unique-no emergence
of new technology, no proprietary research. So the lack of any
sectoral trend is not surprising"
Devesh KumarHead of Equities/I-SEC

This is unlike the past two-to-three years,
when there were clear trends. New economy was fashionable, and so
was media and biotech. Then, the industrials, or the old economy
stocks, were clearly going out of fashion, and anything that sounded
remotely IT was hot. Agrees i-Sec's Kumar: "In the last 12
months there has been nothing unique-no emergence of new technology,
no proprietary research. So the lack of any sectoral trend is not
surprising." There is uncertainty on growth, uncertainty on
competitiveness and this has weighed heavily on sectors across the
board.

That's not the only thing confounding seasoned
investors. According to U.R. Bhat, Director, J.P. Morgan, for the
first time in India, there is a peculiar situation where the earnings
yield of BSE Sensex stocks at 10 per cent is higher than the yield
on 10-year gilts which is at 7 per cent. "What this means,"
explains Bhat, "is that the market is not confident of earnings
growing further, and in fact it expects the earnings from stocks
to depreciate." In the US, there was a period of six-to-seven
years after the depression (1929-35) when both dividend yield and
earnings yield were higher than the interest rates or 10-year treasury
yield. Apparently, when there is a huge correction in the market,
investors' risk appetite depreciates and despite attractive valuations,
they stay away.

"The
market is not confident of earnings growing further, and in
fact, it expects the earnings from stocks to depreciate"U.R. Bhat, Director/J.P. Morgan

This could also be the stock market's equivalent
of the doldrums. Take a look at the Sensex. The bellwether index
has been trading in a narrow band between 2,950 and 3,400 points.
It's as if it were waiting for a signal from somewhere-anywhere-before
casting off its restraints. Says Alok Vajpeyi, Chief Operating Officer,
DSP Merrill Lynch Investment Managers: "It's reflective of
what is happening globally as well. In the next six to eight months,
we expect liquidity flows to increase significantly, chasing high
growth economies, among which India will be a major destination."
If that does happen, the increase in valuations could be across
the board, but the bigger gainers will be the large-cap stocks.

TOP 15 LOSERS THE TOP 100

COMPANY

AVG. Mkt. Cap in H1 2002-03

% Loss*

Hughes Software Systems

696.35

65.60

Sterlite Optical Technologies

586.36

62.93

Videsh Sanchar Nigam

4,387.14

47.77

Reliance Petroleum

12,438.28

40.72

Nirma

2,013.33

35.38

NIIT

831.23

32.63

GTL

730.41

28.90

Hughes Tele.com (India)

942.45

28.16

HCL Technologies

6,359.61

25.60

Indian Hotels Co.

746.6

19.75

Reliance Industries

28,350.92

19.23

Castrol India

2,347.87

19.08

Merck

509.42

18.38

Larsen & Toubro

4,370.58

18.32

Soundcraft Industries

657.19

18.24

Average market capitalisation in Rs crore
* For H12002-03 over H12001-02

As of now, says Bhat of J.P. Morgan, there is
nothing unique that could fire the imagination of the market. What
could be a trigger is the outsourcing sector that could create some
momentum. True, there are just a handful of listed companies in
this sector, but some of them could spring a surprise. Then, there
is the financial sector. Despite the Indian consumer's historic
aversion to debt, there's a growing breed of consumers that is credit
happy. An increase in their numbers will not only lead to a revival
in the financial services sector, but also in that of consumer durables
and auto.

Our choice of features (they follow) on the
BT 500 companies was determined by a simple measure: there must
be an interesting story to tell. Therefore, we picked up Ranbaxy
to examine its transformation into India's first truly transnational
company. Bharti Tele-Ventures makes a good case study of one industry
where privatisation has more than succeeded. ONGC could be the story
of other top public sector units, provided they manage to unlock
their values. And Moschip, a low-profile Hyderabad-based semiconductor
company, may be an underdog today, but we think it could be a winner
tomorrow-provided its plans pan out.

However, given Dalal Street's current misgivings,
it may be a while before equities regain their sheen. But remember:
a good time to buy stocks is when nobody else is buying.